Laws of the People's Republic of China

Circular of the State Administration of Taxation about Matters Regarding the Payment of Enterprise Income Tax by Foreign-invested Enterprises Conducting Communications Services

Guo Shui Han [2007] No. 610

The state taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan, the local taxation bureaus of Guangdong Province, Hainan Province and Shenzhen Municipality:

The related matters regarding the payment of enterprise income tax by foreign-invested enterprises conducting communication services are notified as follows subject to the related provisions of the Detailed Rules for the Implementation of the Income Tax Law of the People's Republic of China for Foreign-invested Enterprises and Foreign Enterprises (hereinafter referred to as Detailed Rules):

1.

Depreciation life of some fixed assets

(1)

Issues concerning the depreciation of pylons, pipelines, simple houses, mobile houses and other fixed assets. The comprehensive communication pylons that are used by communications enterprises for receiving and sending signals, the pipelines that are used for storing communications optical cable facilities and the simple houses that are used for storing the facilities of communications stations, as well as other fixed assets, etc are absolute component parts of the communications equipments, and shall be uniformly included into the scope of fixed assets of the communications equipments, the depreciation of which shall be calculated based on the period of 10 years in accordance with the provisions in Article 35 of the Detailed Rules.

(2)

Issues concerning the depreciation life of communications equipments and computer system equipments. Due to equipment renewal, replacement, upgrading and transformation and other reasons, a communications enterprise may change the 7-year depreciation life of 2G communications equipments and computer system equipments of supporting net into 5 years, the shortest as prescribed in Article 35 of the Detailed Rules according to the equipment renewal condition. In the remaining years after the adjustment, depreciation shall be calculated on the basis of the book balance of each fixed asset by the straight-line method. The aforesaid adjustment shall be reported to the competent taxation authorities for archival filing.

2.

Deduction of personnel cost

When prepaying the enterprise income tax of each season, any communications enterprise that implements the management mode of pegging labor cost to performance evaluation with respect to personnel cost (including wages and welfare expenses, etc.) may temporarily list the planned amount of personnel cost as the actual personnel cost in accordance with the principle of accounting on the accrual basis as prescribed in Article 11 of the Detailed Rules,. When making annual declaration of enterprise income tax, it shall adjust this amount on the basis of the amount actually occurred.

3.

Deduction of expenses for plan of accumulated points

Communications enterprises will develop the plan of accumulated points to reward the clients, which contains giving accumulated points to clients with certain consuming capacity and rewarding them real objects or services in light of the accumulated points. The expenses incurred to the real objects or services rewarded to clients may be listed under the cost of the current period by communications enterprises, while those spent for other purposes may not be listed under the cost.

4.

Accounting unit of entertainment expenses

The entertainment expenses of each branch of a communications enterprise shall be calculated on the basis of branch unit independently. When paying enterprise income tax on a consolidated basis, a communications enterprise shall calculate the amount concerning the entertainment expenses actually incurred by the enterprise as a whole (including those incurred by the head office) on a consolidated basis in light of the proportion as prescribed in Article 22 of the Detailed Rules for the Implementation of the Tax Law.

The present Circular shall enter into force as of the tax year of 2006.

State Administration of Taxation

May 30, 2007